Tax Savings For Preachers
Every year after December has come and gone the season most of us dread rears its weary head. The dreaded Tax Season. We as preachers are in a unique situation when it comes to filing of our taxes. There are some tax advantages that will help us with the tax bite if we know enough about them to take full advantage of what the tax law allows. I would like to look at some of these situations that might be of help to you in reducing or eliminating your taxes altogether!
Generally there are two ways that preachers approach their taxes. One way is to be considered as an employee. With this method any expenses you incur would be considered as employee business expenses.
The other method and I believe the most advantageous is to consider yourself a business. The main reason to consider yourself as a business can be seen very quickly if you examine a copy of IRS Schedule C. Any of your expenses you can get on a Schedule C comes directly off of your Adjusted Gross income amount, the amount that your tax is based on prior to taking your Standard or Itemized deduction and your dependence deduction. Let me show you what I mean.
First of all it is very advantageous to have a work agreement with the congregation with which you work. What this agreement does is specify how the salary that the church pays you is broken down for tax deduction purposes. Let me explain what I mean.
We all know that we are allowed to have a "parsonage allowance. " But do you know what is allowed to be taken on a parsonage allowance? Most preachers know that a parsonage allowance consists of things like Rent or House payments, Utilities. But did you know that furniture costs, the cable TV bill, cleaning supplies for the house, items for lawn care can also be taken as parsonage allowance? On a work agreement you can also declare your auto expenses, insurance and business expenses. The way you do this is to write a form letter declaring the various amounts are allocated for each; then the remainder of your salary is what you base your taxes on. Doing this you keep a copy and the church treasurer files a copy. Every quarter you file a quarterly report giving the amounts you spend on each item. I would be happy to send you a copy of these agreements for a SAE.
If you don't have a work agreement set up, don't despair you can still save money on last year's taxes using Schedule C. If you enter your Gross Salary on line la called Gross receipts or sales. Then drop down to the Part II section called Deductions and figure up the amounts of any of the items you might have that would come under any of these categories. For example the subscription price you pay for this magazine would be one item that would go under line 13 dues and publications.
There are other advantages we have not written about that would help reduce the tax bite. Others I can think of are filing for exemption to Social Security. Taking depreciation on or writing off the full price of the new computer you might have purchased last year.
One final caution. Not a Tax Preparers are fully knowledgeable of preacher's tax returns. I have heard a lot of stories where a preacher didn't get to take all the deductions he was allowed to take. because of lack of knowledge about them.
Guardian of Truth XXXIV: 4, p. 114